Key Highlights

  • Comments on the ATO decision impact statement close on 20 November 2026.
  • The case concerns Capital distributions used to repay Division 7A loans.
  • The decision addresses section 45B and Part IVA.
  • It is the ATO's administrative response to a judgment and does not bind courts.

Private groups that have used capital distributions to pay down Division 7A loans have a short window to tell the ATO what they think of its latest position. The ATO's decision impact statement on Commissioner of Taxation v Hicks, published on 21 October, closes for comment on Friday 20 November 2026. It sets out how the ATO reads the Full Federal Court's decision on section 45B and Part IVA, and it comes as the ATO reviews two practice statements.

What the Hicks decision impact statement covers

Commissioner of Taxation v Hicks [2025] FCAFC 171 is a Full Federal Court decision dealing with section 45B and Part IVA in a case where capital distributions were used to repay Division 7A loans.

A decision impact statement is the ATO's response to a court decision. It explains how the ATO intends to apply the outcome to other taxpayers. It is administrative guidance, not law, and it does not bind the courts.

The ATO lists the Hicks statement on its advice under development page for income tax issues, with the comment period ending on 20 November.

According to that page, the ATO's view is that section 45B is unlikely to apply where the profits were those of a trust and the benefit could not have been "in substitution" for a dividend.

Feedback on decision impact statements typically comes from tax practitioners, professional bodies and affected taxpayers. The ATO's advice under development program invites comments, and feedback is generally considered before a final position is settled.

For family groups that have used similar arrangements in past years, the statement is also a prompt to check whether their records clearly show where the relevant profits sat and why the distribution was made.

Section 45B and Part IVA in plain terms

Section 45B is a long-standing integrity rule. In broad terms, it targets arrangements where a company provides a capital benefit, such as a return of capital, in substitution for a dividend.

Where it applies, the Commissioner can determine that all or part of the capital benefit is treated as an unfranked dividend. That typically produces a higher tax result than a genuine return of capital.

Part IVA is the general anti-avoidance regime. It can apply where a taxpayer obtains a tax benefit from a scheme and, having regard to a list of factors, the dominant purpose of a participant was to obtain that benefit.

The Hicks statement is significant because it addresses both provisions in the context of private groups that use capital distributions to clear Division 7A loans. For groups whose profits sit in a trust rather than a company, the ATO's preliminary view on section 45B may offer some comfort.

Hypothetical example: why the label on a distribution matters

Hypothetical example: an individual owes $300,000 to a private company under a Division 7A loan. The company makes a $300,000 capital distribution to the individual, who uses it to repay the Loan in full.

If the distribution is respected as a return of capital, it would generally reduce the cost base of the individual's shares. Assuming the cost base is at least $300,000, there may be no immediate tax, although a future Capital Gain on the shares could be larger.

If the Commissioner instead made a section 45B determination and treated the whole amount as an unfranked dividend, and the individual was on the top marginal rate of 47% including the Medicare levy, the tax would be about $141,000. That is $300,000 multiplied by 47%.

Even where section 45B does not apply, the Commissioner could still consider Part IVA, which turns on the dominant purpose of the scheme.

The gap between those two outcomes explains why the ATO's interpretation matters. The example is simplified and ignores other income, franking and any Part IVA consequences.

Two ATO practice statements under review

The ATO is reviewing PS LA 2005/24 and PS LA 2008/10 as part of its work on the Hicks decision.

Practice statements tell ATO staff how to approach particular issues. Changes to them can shift how anti-avoidance provisions are administered in practice, even when the underlying law stays the same.

For advisers, that means the guidance landscape could change twice: once when the Hicks statement is finalised, and again if either practice statement is updated.

The wider Division 7A and anti-avoidance backdrop

The Hicks statement is one of several moving parts. In Bendel [2026] HCA 18, the High Court found that unpaid present entitlements are not loans under section 109D.

The ATO's decision impact statement on Bendel, updated on 1 July 2026, says dealings with those funds may still engage Subdivision EA or section 100A, and that TD 2022/11 has been withdrawn.

The government is consulting on implementing the 2018–19 Budget measure to bring unpaid present entitlements within Division 7A. That is a proposal, not law.

Part IVA has also been in the spotlight. On 4 November the High Court, in Commissioner of Taxation v Merchant [2026] HCA 39, unanimously upheld the Commissioner's cancellation of a capital loss of about $56 million under section 177D, the general Part IVA provision.

By a 4:3 majority, however, the court took a narrower view of the Dividend stripping provision, section 177E, holding that "dividend stripping" has a fixed essential meaning and that section 177E is not a general anti-avoidance rule.

The Division 7A benchmark Interest Rate for 2026–27 is 8.77%, up from 8.37%, which increases minimum yearly repayments on complying loans and may make alternative repayment strategies more attractive to some groups.

What to watch

Comments on the Hicks decision impact statement close on 20 November 2026. The ATO will then consider submissions before finalising its position.

Any revised versions of PS LA 2005/24 and PS LA 2008/10 would indicate how the ATO intends to administer the anti-avoidance rules after Hicks and Merchant.

The Senate Economics Legislation Committee is due to report on the government's trust tax bills on 13 November. The proposed minimum tax on discretionary trusts, still a bill, would start on 1 July 2028.

The mid-year economic and fiscal outlook is due in December, and the 2026–27 Division 7A minimum yearly repayments fall due by 30 June 2027.